Tax and you

SETTING UP AND REGISTERING AS A SELF-EMPLOYED MODEL

Introduction

Setting up as a self-employed model is a simple and quick process. There isn’t much paperwork to do. There are no registration fees to pay, but you must register as self-employed. Record keeping and accounting is straightforward, and there are always the benefits of being your own boss compared to working for somebody else.

This article explains the consequences of, and the legal requirements for, setting up as self employed. You will also find out how to meet your responsibilities for paying your own Tax and National Insurance.

Tax matters

As a sole trader you will have to pay income tax on any profits from your business. You must fill in a self-assessment tax return each year, detailing your income and expenses.

1. Register as self employed

Make sure you register as self-employed with HM Revenue & Customs (The Taxman) as soon as you start up in business on your own. If you fail to do this within the first three full months of becoming self-employed, you may have to pay a penalty of £100.

The link to relevant form is http://www.hmrc.gov.uk/forms/cwf1.pdf

2. National Insurance

You’ll have to make flat-rate Class 2 National Insurance contributions (NICs) throughout the year – £2.30 a week for 2008/09 (£2.40 in 2009/10). Setting up a monthly direct debit is a good way to ensure you pay in time.

If your annual profits are over a certain amount – £5,435 for 2008/09 (£5,715 in 2009/10) – you will also have to pay Class 4 NICs. You pay these along with your income tax – the amount you have to pay is calculated from your self-assessment tax return.

3. Tax system basics

The self employed are taxed on earnings for each year ended 5th April.

Usually a self employed person will pay tax on 31st January and 31st July each year

When a business commences the rules are slightly different and first tax payment will be on the first 31st January after the end of the tax year. For example if a model started in September 2008 they would be taxed on the profit earned between September 2008 and 5th April 2009. The first tax bill would be payable on 31st January 2010.

It is important to save during your first year of business because the first tax bill will not only be the tax due for the first period of business but also an “on account” payment for the next tax year. These “on account” payments represent half of the previous tax bill and are paid on 31st January and 31st July.

4. Tax liability (since 6th April 2008)

The amount of tax paid is based on the profit as a model. This profit is the fee income from assignments less any expenses.

How much to “save” for your tax bill varies on how many expenses your business has to reduce its profit but a guide of 20% of your income is a useful rule. The reason for saving this amount is that the profit is taxed at the following rates.

First £5,500 Profit no tax (assuming no other income)

Next £35,500 of Profit 20% income tax and 8% national insurance (total 28%)

Any profit over £41,000 40% income tax and 1% national insurance (total 41%)

5. Family Tax Credits

It is important to remember that the profit from your business not only needs to be reported to the taxman but also the Family Tax Credit agency.

The profit from modelling will reduce the amount of Family Tax Credits which are due to qualifying households.

6. VAT & Employees

If your business has – or you expect it to have – a turnover of more than £67,000 a year, you must charge your customers VAT and send it to the Taxman. Although the business will be able to recover VAT which it pays on business expenses.

The accounting for VAT can be complicated and it is important that an accountant is involved to provide guidance and assistance in this area.

Another area which may be complicated is the employment of people within your business.

For example a successful model may take on a full time personal assistance. Such employment will require you to collect income tax and National Insurance from the employee and pay them to the Taxman.

7. Guidance from the Taxman

A useful link providing a summary of the taxman is the following

http://www.hmrc.gov.uk/startingup/working-for-yourself.pdf

Keeping records of your income and expenses

In order to complete a self assessment tax return it is important to keep financial records. The maintain records to keep are:

A. Bank Account

There is no requirement to have a bank account but the recording of receipts and payments through a bank account adds credibility to the figures in case they are ever questioned by the taxman,

There is no need for a business bank account, a separate personal current account is quite sufficient.

Copies of the bank statements, cheque books and paying in slips should be kept.

B. Income

The income records should comprise:

· A diary of appointments, photo shoots, videos and assignments should be kept

· Schedule of income/fees received maintained. It is important that this agrees to your diary since this is evidence that your list of income is complete.

· Record of sundry income such as personal website receipts

C. Costs

A list of all business costs incurred should be kept and the related receipts or vouchers retained.

The range of costs incurred can vary across different businesses. The following is an example but is not exhaustive.

· Modelling assignment costs

Costumes and accessories

Cosmetics and grooming for assignments

· Employee costs

This could involve a personal assistant, driver & security guard costs etc

· Household costs

If you operate a studio from home/or provide internet camming etc a separate list of household costs (utility, rates, mortgage interest, repairs etc etc) should be made for the purposes of calculating the business share of these costs.

· General administrative expenses

General office costs (papers, ink etc)

Postage costs

Mobile telephone costs etc

Computer costs

· Motor expenses

Motor allowance (40p per mile up to 10,000 miles, 25p thereafter)

A list of the distance travelled on modelling and business trips should be noted. This avoids keeping records of fuel, repairs, MOT and capital costs

· Travel and subsistence

Hotel costs

Fares and ticket costs

· Advertising, promotion and entertainment

Website costs and other promotional expenses etc

Cost of networking functions and meets

· Legal and professional

Accountancy etc

· Other Costs and Allowances

Allowances for capital costs such as Computer / Camera Equipment / Music System etc etc

Many of these items will have a private benefit aspect and will need to be adjusted for in the calculation of tax.

The above guide is designed to provide a background to the legal and tax aspects of becoming self employed.

Further guidance is available from the author of this article, James Helliwell. He is a fully qualified accountant able to complete accounts and tax returns for individuals and organisations involved in the adult entertainment industry.


He has a profile on the following link http://www.adultwork.com/James%5FAccountantand his email address is helliwell_james@yahoo.co.uk